Digital telemetry systems are a requirement in most towed underwater sonars in order to multiplex and digitize a large number of acoustic and nonacoustic sensors. Usually the telemetry must be capable of transmitting its signal in a reliable manner to a cable/array system 1 to 2 miles in length. The cable diameter is minimized to reduce hydrodynamic drag, and this limits the overall telemetry bandwidth. In addition, the telemetry system must be capable of operating over a very large acoustic dynamic range and increasing individual channel bandwidths. These requirements, large number of sensors, limited cable bandwidth, high dynamic range, and wide acoustic sensor bandwidths, are often conflicting. They oblige the designers of towed acoustic arrays to seek out novel and innovative schemes to reduce telemetry bandwidths that are capable of meeting the large dynamic range requirements. This system can be used over a dynamic range in excess of 120 dB that requires only 9 bits per channel. Normally a system that operates over a 120 dB dynamic range would need 20 bits per channel. The reduction from 20 to 9 bits per channel is a savings of over 2 to 1 in bandwidth reduction. Thus, this system is beneficial in that it meets the large dynamic range requirements, yet reduces the telemetry bandwidth requirements.